On July 18, in Nelsen v. Legacy Partners Residential, Inc., a California district court became the latest court to reject the National Labor Relations Board’s (NLRB) position that the National Labor Relations Act (NLRA) prohibits waivers of an employee’s right to file joint, class or collective claims as a condition of employment. The NLRB first expressed this position earlier this year in D.R. Horton, Inc. v. Cuda. The NLRB determined that class waiver agreements constitute an unfair labor practice when the waiver applies to claims regarding wages, hours or other conditions of employment, because they prohibit employees from engaging in concerted activity protected by the NLRA. The NLRB also held that a violation of the NLRA exists regardless of whether the agreement prohibits such claims in arbitration or court.

In D.R. Horton, the waiver required employees to agree that:

All disputes and claims relating to the worker’s employment would be determined exclusively by final and binding arbitration.

The arbitrator only had authority to hear the employee’s individual claims and could not consolidate other employee’s claims, process claims as class or collective actions or award relief to a group or class of employees in one arbitration proceeding.

The employee waived his/her right to file suit against the employer relating to his/her employment and waived the right to resolve employment claims before a judge or jury.

The NLRB concluded that employees could only pursue employment claims through individual arbitration, which ran contrary to federal labor policy embodied in the NLRA. In the end, the NLRB stated that federal labor policy trumps federal arbitration policy as embodied in the Federal Arbitration Act (FAA).

To arrive at this conclusion, the NLRB essentially disregarded two recent Supreme Court rulings—14 Penn Plaza LLC v. Pyett and AT&T Mobility LLC v. Concepcíon. In 14 Penn Plaza, the court held that employers can require employees, as a condition of employment, to agree to arbitrate statutory claims, such as discrimination claims made under Title VII. In Concepcíon, the court held that companies can require consumers to arbitrate statutory claims and waive their right to have such claims heard in class action arbitration.

In Nelsen, employees had to agree to resolve all employment-related disputes in arbitration. The agreement, however, neither expressly allowed nor prohibited class arbitration. Citing Concepcíon, the California court held that class arbitration cannot be imposed on a party that did not expressly agree to it; therefore, this particular agreement could not be interpreted to allow class arbitration.

The California court went on to reject the holding in D.R. Horton, citing the fact that only two members signed the D.R. Horton decision and that the “subject matter of the decision—the interplay of class action litigation, the FAA, and section 7 of the NLRA—falls well outside the [NLRB’s] core expertise in collective bargaining and unfair labor practices.” Further, the court found that D.R. Horton states “a novel interpretation of section 7 and the FAA [without citing] prior legislative expression, or judicial or administrative precedent suggesting class action litigation constitutes a ‘concerted activity [under the NLRA]’ … or that the policy of the FAA favoring arbitration must yield to the NLRA in the manner it proposes.”

The court also relied on the fact that, prior to the D.R. Horton decision, at least “two federal district courts [Southern District of California and Northern District of Georgia] had specifically rejected arguments that class action waivers in the labor context violated section 7 of the NLRA.” Since D.R. Horton, at least two federal district courts (Northern District of California and Southern District of New York) have rejected the NLRB’s position.

Finally, relying on the Supreme Court’s decision in CompuCredit Corp. v. Greenwood, the California court stated that “a federal statute will not be found to override an arbitration agreement under the FAA unless such a congressional intent can be shown with clarity in the statute’s language or legislative history.” In CompuCredit, the plaintiffs claimed that the Credit Repair Organizations Act (CROA) prohibited arbitration of CROA claims because the statute prohibits the waiver of the rights it grants, including the “right to sue.” The court rejected that argument, holding instead that, because the CROA is silent on whether claims under the CROA can proceed in an arbitration forum, the FAA requires that the arbitration agreement be enforced according to its terms. Since the NLRA does not contain any language demonstrating such intent, the California court found the NLRB’s “trumping” premise flawed.

The takeaway for an employer that requires arbitration of employment claims and/or class action waivers as a condition of employment is bittersweet. You can risk facing the ire of the NLRB with the hope that a court will rule in the employer’s favor on appeal. The Nelsen case serves as a reminder to consult with legal counsel regarding the potential perils of such agreements.